There is a time for talk and a time for action, and for the Governing Council of the European Central Bank, this week is expected to be mostly a time for talk. The subject? The end of QE.

ECB Chief Economist Peter Praet warned last week that rate-setters need to discuss the fate of the bank’s EUR 30bln-a-month asset purchase programme at their next series of meetings, which end Thursday in Riga, Latvia.

“The governing council will have to assess whether progress so far has been sufficient to warrant a gradual unwinding of our net purchases,” Praet said during a 6 June speech in Berlin.

The bank is expected to hold rates at current levels this week and will likely wait until at least July of next year for its first hike, according to analysts. The ECB last raised interest rates in July 2011.

Central bank mavens generally expect ECB President Mario Draghi to avoid revealing any details about the next steps for asset purchases at the press conference scheduled for 1230 GMT Thursday. The quantitative easing programme is tentatively set to end in September but can be extended at the bank’s discretion.

EUROZONE INFLATION ON TARGET, GROWTH CONCERNS ARISE

After more than three years of bond purchases, the ECB is finally getting what it wanted, namely Eurozone inflation hitting its long-standing target of near but below 2pct. Consumer price growth in the single currency area rose unexpectedly to an annual rate of 1.9pct in May.

But much of that growth has been from rising oil prices, which could diminish the bank’s conviction about announcing the end of QE and hinting at rate changes until council members can digest additional inflation data. Core inflation was only 1.1pct last month.

Furthermore, recent economic indicators suggest Eurozone growth is sagging, another reason for rate-setters to hold on changes to forward guidance until at least July.

The ECB is scheduled to publish its latest projections for Eurozone growth and inflation at 1330 GMT Thursday, which could shed more light on the council’s intentions. The bank may choose to raise its HICP forecasts for this year following the rise of oil prices, observers suggested, noting that the projections may show a downward revision for 2018 GDP growth due to the latest spate of economic data.

ECB MARCH PROJECTIONS

Two surveys this month have shown significant declines in the confidence investors have in the Eurozone economy. The ZEW Eurozone economic sentiment indicator dropped sharply and into negative territory Tuesday, and investor responses about the expectations for Germany’s economic future over the next six months resulted in the lowest reading in nearly six years.

In a note, Dankse Bank said: “While we expect forward guidance to be changed in July, we cannot rule out the possibility of it coming already next week given the recent comments from Praet. In our view, we have not received any data that should warrant the ECB moving already now.”

POLITICS TO THE FORE

Unpredictable government actors at home and abroad, made glaringly apparent at the G-7 meeting over the weekend, may force rate-setters to remain mum this month in the hope that the situation becomes less volatile.

In a note, Oxford Economics said: “Rising trade tensions between the EU and US raise the risks of a tit-for-tat increase in tariffs. There are already early signs of an adverse hit to investment via the confidence channel adding to the fading of last year’s Euroboom.

“Italian politics have raised the spectre of a new euro crisis. All that has clearly tilted the balance of risk to the growth outlook to the downside.”

Eric Culp, LiveSquawk News – Frankfurt

ECB CHEAT SHEET

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